Solved by verified expert :14.
When a parent purchases a portion of the newly
issued stock of its subsidiary and the ownership interest remains the same,
a. any
difference between the change in equity and the price paid is the excess of
cost or book value attributable to the new block.
b. any
difference between the change in equity and the price paid is viewed as a gain
or loss on the sale of an interest.
c. any
difference between the change in equity and the price paid is viewed as a
change in paid-in capital or retained earnings.
d. there will be no adjustment.
15.
When a parent purchases a portion of the newly
issued stock of its subsidiary in a private offering and the ownership interest
decreases,
a. any
difference between the change in equity and the price paid is the excess of
cost or book value attributable to the new block.
b. any
difference between the change in equity and the price paid is viewed as a gain
or loss on the sale of an interest.
c. any
difference between the change in equity and the price paid is viewed as a
change in paid-in capital or retained earnings.
d. there will be no adjustment.
16.
When a parent purchases a portion of the newly
issued stock of its subsidiary and the ownership interest increases,
a. any
difference between the change in equity and the price paid is the excess of
cost or book value attributable to the new block.
b. any difference
between the change in equity and the price paid is viewed as a gain or loss on
the sale of an interest.
c. any
difference between the change in equity and the price paid is viewed as a
change in paid-in capital or retained earnings.
d. there will be no adjustment.
17.
Apple Inc. purchased a 70% interest in the Banana
Company for $450,000 on January 1, 20X3, when Banana Company had the following
stockholders’ equity:
Common stock, $10 par…………….. $100,000 Other paid-in
capital…………….. 250,000 Retained earnings………………… 150,000
At the time
of the purchase, Banana Company was an 80% owner of the Carrot Company. The
investment in Carrot Company is accounted for under the sophisticated equity
method. On the date of the purchase, Carrot Company has a machine that has a
market value in excess of book value of $20,000. There is no difference between
book and market value for any Banana Company assets. The goodwill that would
result from this purchase is __________.
a.
$100,000
b.
$86,000
c.
$84,000
d. $88,800
8-6
Chapter 8
18.
Apple Inc. owns a 90% interest in Banana Company.
Banana Company, in turn, owns a 80% interest in Carrot Company. During 20X4,
Carrot Company sold $50,000 of merchandise to Apple Inc. at cost plus 25%. Of
this merchandise, $10,000 was still unsold by Apple Inc. at year end. The
adjustment to the controlling interest in consolidated net income for 20X4 is
__________.
a.
$560
b.
$1,440
c.
$1,600
d. $1,800
19.
Able Company owns an 80% interest in Barns Company
and a 20% interest in Carns Company. Barns owns a 40% interest in Carns
Company.
a. Able does
not control Carns; thus, Carns’ income is not included in the consolidated
statements.
b. Able controls
Carns; the noncontrolling interest of Carns Company is 48%.
c. Able
controls Carns; the noncontrolling interest of Carns Company is 40%.
d. Barns
accounts for Carns under the sophisticated cost method; Barns is then
consolidated with Able.
20.
Able Company owns an 80% interest in Barns Company
and a 20% interest in Carns Company. Barns owns a 40% interest in Carns
Company. The reported income of Carns is $20,000 for 20X4. Which of the
following shows how it will be distributed?
Barns
Carns
Controlling
Non-
Controlling
Non-
Interest
Interest
Controlling
a.
$10,400
$1,600
$8,000
b.
$ 2,000
$8,000
$8,000
c.
$12,000
$
0
$8,000
d. $10,400
$9,600
$
0
21. Consolidated statements for
X, Y, and Z are proper if
a. X owns 100%
of the outstanding common stock of Y and 49% of Z; M owns 51% of Z.
b.
X owns 100% of the outstanding common stock of Y and
75% of Z; X bought the stock of Z one month before the statement date and sold
it 6 weeks later.
c.
X owns 100% of the outstanding stock of Y; Y owns
75% of Z.
d. There is no
interrelation of financial control among X, Y, and Z; however, they are
contemplating the joint purchase of 100% of the outstanding stock of D.
e.
X owns 100% of the outstanding common stock of Y and
Z; Z is in bankruptcy.
8-7
Chapter 8
22. Which of the following
situations is a mutual holding?
a.
A owns 80% of B, and B owns 70% of C.
b.
A owns 80% of B and 20% of C; B owns 70% of C.
c.
A owns 80% of B, and B owns 20% of A.
d. None of the above
23.
Company P had 300,000 shares of common stock
outstanding. It owned 80% of the outstanding common stock of S. S owned 20,000
shares of P common stock. In the consolidated balance sheet, Company P’s
outstanding common stock may be shown as
a.
285,000 shares.
b.
300,000 shares.
c.
300,000 shares, less 20,000 shares of treasury
stock.
d. 300,000 shares, footnoted to
indicate that S holds 20,000 shares.
24.
A owns 80% of B and 20% of C. B owns 32% of C, and C
owns 10% of A. Which interest will not be included in the consolidated balance
sheet?
a.
10% of A
b.
100% of C
c.
10% of A and 48% of C
d. 20% of B and 48% of C
25. Manke Company owns a 90%
interest in Neske Company. Neske, in turn, owns
a
10% interest in Manke. Neske has 10,000 common stock
shares outstanding, and Manke has 20,000 common stock shares outstanding. How
many shares would each firm show as outstanding in the consolidated balance
sheet, under the treasury stock method?
a.
Manke, 20,000
b.
Manke, 20,000; Neske, 1,000
c.
Manke, 18,000; Neske, 1,000
d. Manke, 18,000
8-8
Chapter 8
26.
Alston Inc. owns 90% of the capital stock of Balance
Co. Balance owns 15% of the capital stock of Alston. Net income, before
adjusting for interest in intercompany net income for each firm, was $50,000
for Alston and $19,000 for Balance.
The
following notations are used. Ignore all income tax considerations.
Ai = Alston’s consolidated net income, i.e., its net income plus
its share of the consolidated net income of Balance
Bi = Balance’s consolidated net income, i.e., its net income
plus its share of the consolidated net income of Alston
The
equation, in a set of simultaneous equations, that computes Bi is
a.
Bi = .10 x (19,000 + .15Ai).
b.
Bi = 19,000 + .15Ai.
c.
Bi = (.10 x 10,000) + .15Ai.
d. Bi = (.10 x 19,000) + (.15 x
50,000).
27.
Alston Inc. owns 90% of the capital stock of Balance
Co. Balance owns 15% of the capital stock of Alston. Net income, before
adjusting for interest in intercompany net income for each firm, was $50,000
for Alston and $19,000 for Balance.
The
following notations are used. Ignore all income tax considerations.
Ai = Alston’s consolidated net income, i.e., its net income plus
its share of the consolidated net income of Balance
Bi = Balance’s consolidated net income, i.e., its net income
plus its share of the consolidated net income of Alston
Balance’s
noncontrolling interest in consolidated net income is
a.
(.10 x 19,000).
b.
19,000 + .15Ai.
c.
10 x (19,000 + .15Ai).
d. (10 x 19,000) + (.15 x
50,000).
